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Tech Careers / Tech Culture

Entrepreneurship for Engineers: Achieving Product-Led Growth

It can take longer than a sales-led route, but focusing hard on end users can pay off big. Here's how to implement a product-led strategy.
Oct 8th, 2022 5:00am by
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Entrepreneurship for Engineers is a monthly column by longtime New Stack contributor Emily Omier that explores the concerns of developers who want to build tools for other developers — and build a business around their innovations. We welcome your feedback, and ideas for future columns.

For many technical founders who are wary of sales and marketing, the lure of a product-led growth strategy is strong. But what exactly is product-led growth? How is it implemented in the real world? And how do people get it wrong?

As is often the case with business trends, there are a lot of misconceptions about product-led growth, and they can prevent companies from implementing it successfully.

What Is Product-Led Growth?

Product-led growth is a strategy in which “the product is the main driver of acquisition, retention and expansion of users and monetization,” said Sam Richard, vice president of the growth team at OpenView, a venture capital company.

So a user is able to get started with the product, use it, have an “a-ha!” moment, and pay, all without talking to anyone from the company.

Another way to think about product-led growth is an obsessive focus on the needs of the end user, and optimizing both your product and your buying process to provide the best experience for end users.

It also pays off. When companies have a product-led growth strategy, “I tend to see that the businesses are healthier, they tend to spend less on sales and marketing overall, but they put more of their money in research and development,” Richard told The New Stack.

Unfortunately, actually implementing product-led growth is really hard. While it seems like focusing on end user needs is a no-brainer, it’s not how traditional B2B works — those companies are at least as, if not more, concerned with the needs of the economic buyer, which will always be somewhat different from the needs of the end user.

The key performance indicators for product-led growth are different from a sales-led approach, and it can be harder to forecast revenue growth, especially if your pricing model is usage-based — which can lead to pressure from investors to switch to a sales-led growth strategy. Also: in no way does product-led growth mean that you don’t need marketing or sales.

“Product-led growth is so hard,” Richard said. “There’s not really a playbook, everyone that I’ve spoken to who’s become really successful in a product-led company still feels that they just got lucky.”

Focus on the End User

So what can you do to tip the scales in your favor, making it more likely you’ll get lucky with product-led growth?

The first step is an organizational mindset shift towards the end user. This means tailoring everything, from your feature list to your pricing model, to the end user. It might also mean accepting that not all free users will ever become paid users, and being okay with that.

Then you should also think about your marketing. The marketing team and the product team have to work together tightly, said Francesca Krihely, senior director of developer experience at Snyk, a developer security platform. In fact, one of the challenges to getting product-led growth right is that it’s a very cross-functional effort.

You have all these teams that, although they have the best of intentions, they all operate really differently,” she said. For product-led growth to work, they have to find a way to work together.

“What we call traditional marketing becomes even more important,” Richard said. “Like product positioning, the ideas in books like “Crossing the Chasm,” become more important when you’re thinking about product-led growth, because you’re asking the product to do the selling and value driving for you, but you still have to write the copy that gets people to that point mentally.”

You also have to tinker with the product, the copy, the process — but at a smaller company, you won’t be able to run statistically significant experiments like they do at big consumer companies. Instead, Krihely suggested, ask yourself, “What’s the simplest way you can get a sense or signal that something is or is not working?”

Activating Your Users

One of the key ideas behind product-led growth is that you have to activate at least 40% of people who sign up for your product. But what exactly is activation? It depends.

“Product activation is a metric that a lot of product folks are using to define an ‘a-ha!’ moment,” Richard said. “It’s really bespoke.”

What action a user needs to take to be considered “activated” depends entirely on the product. In fact, figuring out what activation is in your product is one of the things that product and marketing leaders have to figure out if they’re following a product-led growth strategy. “It’s something that’s really straightforward for a user to do, that correlates to them sticking around once they’ve done it,” Richard said.

Getting the activation metric wrong could totally skew the data you’re getting about your users and how engaged they are with the product. So it’s important to both get the activation point for your particular product right, and ensure that at least 40% of sign-ups are activating.

A New Set of Skills

Another challenge companies have implementing product-led growth strategies is that they often take different skills than one would traditionally look for in a B2B marketing organization. Because product-led growth relies on user focus, and on large volume, it tends to resemble a consumer product, in terms of how go-to-market is managed, more than an enterprise software company.

“I look for varied experiences in the past, not always at a software company,” Richard said, about how she helps portfolio companies looking for marketers to help with a product-led growth strategy. “I look at Tinder, I look at Duolingo, because those people are able to run experiments on enormous bases of folks. And I think that they probably have way more insights than I ever would have.”

Lastly, it can be hard to stick with product-led growth for long enough to see the results. “My gut is that there are some businesses that decide ‘we want to do this’ and are expecting results immediately,” Krihely said. “That’s just not possible.” Product-led growth takes time, but can have a big payoff in the long term.

Do you have any topics related to entrepreneurship you’d love to see covered? Reach out on Twitter and let me know.

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